RMBS market ok for now

Attention in the domestic credit market swung back to the imminent collapse or revival of the RMBS sector, last week. Opinion is clearly divided as to which way it is going to go.

The trigger for the re-emergence of this issue appears to have been comments made by various participants and attendees at the Debt Markets 2008 Summit held in Sydney on Monday.

Stephen Mayer of Macquarie Group said the mortgage backed bond market would recover over the next 12 to 18 months (or so Bloomberg reported).

At the same conference RBA Assistant Governor Guy Debelle noted the stock of outstanding RMBS fell by 20 per cent since mid-2007 to$140 billion. Debelle went on to note that quarterly RMBS sales have averaged only $2 billion since July 2007, compared with a quarterly average of $18 billion over the prior year.

Joshua Gans and Christopher Joye started the debate about the future prospects of the RMBS sector in March with the release of their proposal for the establishment of "AussieMac" - a federal government owned and guaranteed buyer of mortgages and issuer of mortgage backed securities.

The Australian Securitisation Forum quickly followed. The ASF called for a funding agency modelled on the Canadian Mortgage and Housing Corporation.

One target mentioned for the agency is for it to sell $20 billion a year in mortgage-backed bonds. Based on current market size this is equal to about two per cent of mortgage finance stock and about nine per cent of the mortgage flow.
   
Neither of these proposals received unanimous support at the time, and your correspondent was one who argued that there was no need for a government-backed body to save the RMBS market in Australia and that the market would recover in its own time.

However, the proposals have featured heavily in submissions made to the inquiry by the House of Representatives' economics committee into competition in the retail banking and non-banking sectors, with arguments being made both for and against.

The argument against was briefly touched on in the Australian Financial Review's editorial on Tuesday, referring to other comments made by Guy Debelle at the conference. This was followed on Wednesday by an article written by the AFR's economics editor, Alan Mitchell, referring to the arguments against made by the Treasury and the RBA in their submissions to the inquiry.

This was too much for the ASF, which through a right of reply article in the AFR on Thursday reiterated its position.